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Unilever and Danone ready for low-carbon economy

Article-Unilever and Danone ready for low-carbon economy

In a recent sector research report by CDP, it was revealed that Unilever and Danone are amongst the top three most well-prepared companies for a low-carbon economy transition of the ranked 16 consumer goods companies.

The three emission scopes

  • Scope 1 emissions are direct emissions from owned or controlled sources.
  • Scope 2 emissions are indirect emissions from the generation of purchased energy.
  • Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.

The Consumer Goods sector is not an emissions-intensive sector from a Scope 1 and Scope 2 perspective, but is indirectly responsible for significant Scope 3 emissions across the value chain. Food and beverage companies have higher upstream exposure associated with the use of agricultural commodities in their products.

Innovation at the forefront

Companies also face risks associated with resource availability and water stress which threatens to disrupt business models both up and downstream. Leading companies are attempting to innovate their way past these risks however their core business models which are linear in nature remain exposed to future resource constraints.

As a consumer-facing sector, companies are exposed to changing consumer trends. While consumers face limited direct regulation related to climate change, there is an emerging trend amongst millennials to adopt more environmentally conscious practices. This is evidenced in shifting preference for vegan diets, smaller eco-friendly brands and reduced packaging. Leading companies are responding to these trends through the acquisition of small brands but more transformative innovation and shifts in business models may be needed to align with targets set by the Paris Agreement.

The League Table

Table League summary.JPG

There are four key areas assessed in the League Table, which are aligned with recommendations for company reporting from the G20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD):

Transition risks: We assess companies’ disclosure and exposure to Scope 3 emissions, business resilience, brand performance and raw material risks.

Physical risk: We assess companies’ exposure to water stress across their value chain and evaluate their water management processes and targets.

Transition opportunities: We assess companies’ positioning to capitalise on the significant revenue potential resulting from changing consumer preferences. In addition, we assess companies’ investments in renewable energy.

Climate governance and strategy: We analyse companies’ governance frameworks including emission reduction targets and the alignment of remuneration with low carbon objectives.

Key findings from the research report

  • Despite acknowledging the significance of Scope 3 emissions, 56% of Food & Beverage companies have no Scope 3 emission reduction targets with Household & Personal Care companies performing better at 29%
  • Diversified food companies which are reliant on a wide range of agricultural commodities including meat, dairy, nuts and soy have amplified exposure to raw material risks from water and emissions intensive supply chains
  • Pureplay beverage companies are less exposed to these supply chain risks; however, the use of water as a key ingredient generates operational and reputational risks. On average, beverage companies withdraw more than four times the water in their operations than their food counterparts
  • Outside the brewers which are already plant based, five out of the remaining seven Food & Beverage companies have innovated existing dairy or meat-based products to offer vegan options
  • Packaging is one area where companies can introduce circularity to their business models. 63% of companies are investing to advance depolymerisation and recycling infrastructure
  • The food and beverage sub-sector is led by Danone, closely followed by Nestlé in second place

Download the executive summary 

Text and sources: Fast Moving Consumers: Which Consumer Goods companies are ready for the low-carbon transition - executive summary by CDP (Christie Clarke, Carole Ferguson, Tom Crocker, Kane Marcell)